Aquiring property at tax sales- Safe?
Titusville, PA · Member since 2014 · 49 posts · 0 votes
Aquiring property at tax sales- Safe?
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Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
12yI would not take the word of the tcb person that you talked to for a couple of reasons:
1. Mistakes are made all the time on title searches, names are misspelled, names are mis indexed, mortgages are missed, etc. etc. etc. I've been doing this for decades and I can tell you that there are many mistakes made in title searches.
2. In one county they use law school grads who have not passed the bar yet to do the title searches, AND they only do one owner searches. A one owner search does NOT show any liens from prior owners. Once I bought a property where there was a lien from 3 owners ago, still intact. fortunately that would be a title insurance claim, but at tax sales there is no title insurance given. When I pointed out to one of these law grads that they missed a mortgage, he said, "It doesn't matter these people are losing their house anyway." Well it does matter to the buyer.
3. Judicial sale is not the bonanza that some think. By law any party not notifies, like a lien from the second owner back, is NOT wiped out or any lien missed and not notified is not wiped out.
4. Tax sales are the most hazardous types of real estate purchases. There is no sellers disclosure, there is no home inspection and many of the property are bought with out an interior inspection. It is buyer beware with no safety net.
5, We have never found a title insurance company that would issue title insurance in PA for a tax sale property, and we've been doing this for nearly 3 decades and bought hundreds of properties.
6. As that real estate investor Dirty Harry says, "Do you feel lucky, well do you?"
48 Replies
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes12y
Maybe. Tax claim bureau deeds take a few months to issue. Depends on whether all parties with an interest in the property were properly served as well. You still have to also deal with any occupants (it will not be an eviction with the magistrate BTW).
So are your plans to buy at "upset" sale or at "judicial" sale?
Maybe @David Krulac will have something to add.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes12y
Been to Titusville and Oil City both.
Be careful.
Always do a title search & due diligence
Always inspect the property even if only the outside
Always know the rules of the sale
The Tax Deed, in my PA experience will not be title insurance worthy. Check with your local title settlement company or real estate attorney. The issue is always the validity of the notice to the former owner. If procedures are good in your county, you may be able to get title insurance.
Most banks and title insurance will not touch the tax deeds in Pa..
- 12yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
boy your tax sales are sure complicated . so for those that know the nuances I bet you can do well..
I was just used to going to CA.. tax sales which are no different than foreclosure auctions.. bid buy get a deed and resell all in a short amount of time...
- Investor · Detroit, MI · Member since 2012 · 119 posts · 64 votes12y
Not sure how it is in PA, but sounds similar to MI. I invest in tax properties here and you can find title companies that will insure over these (at least here in MI they will). There's only gonna be three main issues with properties bought in tax auctions (I'm talking about the ones where all liens are extinguished).
1. Title issues: Every party should have been properly received notice. The county (or whoever foreclosed) needs to mail out notice to all parties. Lenders, titleholders, lien holders, etc. If this was executed properly then you can insure over title with no problem. If this was not executed properly you may need to pursue Quit Title.
2. Squatters: The house is occupied. You need to evict and it might be messy.
3. Property Condition: Here in MI, you can not get inside the house (although I try to gain access if possible). So...there may be issues you can not see through the windows or on the outside.
From what I hear, most of the time (in the county I invest in, in MI) everything is okay. An attorney for a title company told me that 90% of the time the title company will insure over the property without Quit Title needed.
I'd recommend doing a DIY title search, aka searching the county records and mapping out a chain of title and also any liens against the property. The more complicated the chain of title and the more liens against the property, the higher the chance of something going wrong.
I narrow the list of properties I like and then do this quick search. Usually only takes 15 minutes. I rule out anything with a complicated chain of title (lots of deeding back and worth, lots of quit claim deeds, etc) and anything with multiple judgment liens against it. Unless I really like the property, those will be deleted from the list.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes12y
@David O - PA is similar with respect to the three points you gave. But PA differs in that properties are first exposed in what they call the "upset" period, where the bidder accepts the property subject to all liens and encumbrances of record. If the property once exposed to "upset' sale receives no bids, then the county tax claim bureau petitions a judge to hold what is termed a "judicial" sale; that petition requests that all liens and encumbrances other than the ones being pursued be extinguished. There is no redemption period for tax deeds from a PA county tax claim bureau.
And that just covers the tax deed sales made by the tax claim bureaus in PA counties that have a tax claim bureau; tax deeds can also be obtained at a sheriff sale and those follow another different set of rules! And the ones from a sheriff sale might have even a redemption period ...
- Titusville, PA · Member since 2014 · 49 posts · 0 votes12y
Thank you guys so much for your responses ! I think I will call a few title companies today when they open & pick their brains.. Judicial sale is where I'm trying to buy.
I talked with -whoever answered the phone- at the tax claim bureau about the title situation. He SAID that I don't really need to get a title search because they have already done this, and have properly notified everyone they needed to.
The informational page on their site says something like "properties must be paid in full immediately after the property is struck down" . That tells me that there is no time for title companies, insurance, and the like? Just sign here and here, give us some money, and you'll get your official paperwork in however long... Looks like I'll have to make a few more calls to be sure on that . They're going to love me by the time I'm done with them :)
I've been visiting the properties in person, noting which are occupied, entering when possible, and taking notes as to condition.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes12y
I would not take the word of the tcb person that you talked to for a couple of reasons:
1. Mistakes are made all the time on title searches, names are misspelled, names are mis indexed, mortgages are missed, etc. etc. etc. I've been doing this for decades and I can tell you that there are many mistakes made in title searches.
2. In one county they use law school grads who have not passed the bar yet to do the title searches, AND they only do one owner searches. A one owner search does NOT show any liens from prior owners. Once I bought a property where there was a lien from 3 owners ago, still intact. fortunately that would be a title insurance claim, but at tax sales there is no title insurance given. When I pointed out to one of these law grads that they missed a mortgage, he said, "It doesn't matter these people are losing their house anyway." Well it does matter to the buyer.
3. Judicial sale is not the bonanza that some think. By law any party not notifies, like a lien from the second owner back, is NOT wiped out or any lien missed and not notified is not wiped out.
4. Tax sales are the most hazardous types of real estate purchases. There is no sellers disclosure, there is no home inspection and many of the property are bought with out an interior inspection. It is buyer beware with no safety net.
5, We have never found a title insurance company that would issue title insurance in PA for a tax sale property, and we've been doing this for nearly 3 decades and bought hundreds of properties.
6. As that real estate investor Dirty Harry says, "Do you feel lucky, well do you?"
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes12y
Tax Sales are so different in every state. Between certificate and deed states and all the different rules, I think it is the most hazardous real estate to buy. What is a rule in one state does not apply in another. Some states have redemption, some do not. In some states you bid up the price in others you bid DOWN the interest rate. I think in UTAH, that you bid down the percentage of ownership, so you could end up partners with the defaulting owner.
Title insurance is available is some states but not in others. There are only 2 remedies for un-insurable title, and one attorney suggested waiting until the statute of limitation for adverse possession as a remedy. In CA that is 5 years, but in PA its 21 years and in LA (the sate) its 30 years. (In Costa Rica its 6 months!)
- Investor · Dillsburg, PA · Member since 2013 · 48 posts · 17 votes12y
@David Krulac and @Steve Babiak thanks for sharing your insight and experience. I'm pursuing a few properties via tax sales, you provided some information that I was not aware of.
How can you sell the properties in the future, if title insurance is not available on them? My intent is Buy and Hold, but I would want to sell them SOME day, obviously.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes12y
Originally posted by @David Krulac:
@Summer Segeleon
...
3. Judicial sale is not the bonanza that some think. By law any party not notifies, like a lien from the second owner back, is NOT wiped out or any lien missed and not notified is not wiped out.
...
This part of David's post does not agree with a very recent presentation by the Montgomery County TCB reps at the DIG REIA meeting. It's my understanding (from that presentation) that the liens are wiped out but subject to challenge by the lien holder(s). Sometimes the challenge happens while the sale is being confirmed by the court (before a TCB deed is issued); sometimes the challenge happens at some later point since after all the party making the challenge is claiming that they were not properly notified ...
Some links that will show some of the intricacies in tax sales:
http://www.legis.state.pa.us/cfdocs/legis/TR/transcripts/2013_0209_0002_TSTMNY.pdf
http://www.pacourts.us/assets/opinions/Commonwealth/out/1079CD12_8-19-13.pdf?cb=1
http://law.justia.com/cases/pennsylvania/commonwealth-court/1989/126-pa-commw-35-0.html
http://www.leagle.com/decision/199344921PaDampC4th428_1394
http://www.pacourts.us/assets/opinions/Commonwealth/out/135CD13_9-4-13.pdf?cb=1
http://www.pacourts.us/assets/opinions/Commonwealth/out/1468CD13_4-30-14.pdf?cb=1
http://caselaw.findlaw.com/pa-commonwealth-court/1666687.html
http://law.justia.com/cases/pennsylvania/commonwealth-court/2013/2328-c-d-2011.html
http://www.paed.uscourts.gov/documents/opinions/07D0883P.pdf
http://www.macdonaldillig.com/david-e-holland.html
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes12y
I guess I was not very clear.
1. Judicial sales do wipe out any mortgage or lien that is NOTIFIED. If the lien holder is not notified, under PA law they have two re-courses:
a. Petition the Court of Common Pleas to overturn the sale, revert the property to the former owner, negate the tax sale, refund the high bidder what they paid including fees, recording, etc,, and reinstate all liens and mortgages.
b. Since the court only confirms the wiping out of lien holders who were actually notified, then any lien holder not notified is not wiped out. The tax sale stands and the high bidder takes the property subject to the NON-Notified mortgage, lien, judgment, etc.
2. How could this possibly happen:
a. As in the example above the title search presented to the court for confirmation is a one owner search only and there is an un-satisfied mortgage from the owner BEFORE the one owner search.
b. A mistake is made in the search, due to mis-indexing, mis-spelling, or just plain human error, and a lien is missed and not listed on the search for court confirmation, therefore it is NOT on the list and NOT wiped out.
c. The lender has a name change, which never happens, oh yea like Countrywide becomes Bank of America, or Wachovia becomes Wells Fargo. Or the address of the lender changes and the notice of their mortgage being wiped out goes to the wrong address, or address where they used to be but are no longer at and the postal forwarding has expired. No notice is given to the lien holder, so they are not wiped out.
@Brad Glenn & everybody else.
Tax Sales are the most hazardous way to buy real estate. The rules are complicated, and YOU can do everything right and still get a royal hosing by any number of thing including notice.
I've been to many Common Pleas Court Confirmation Hearings, they are an education in themselves. The case law is another education. The Widow Brown case, which is memory serves was from Columbia, PA, not only set precedents, but also caused a re-write of the tax sale law. The forfeiture of one's real estate over a tax bill which sometimes can be very low dollar amounts and very confusing is indeed a drastic measure and the courts almost always will side with the sympathic side if at all possible. Lack of notice for what ever reason opens the door, so a tractor trailer could be driven through.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes12y
Originally posted by @David Krulac:
...
c. The lender has a name change, which never happens, oh yea like Countrywide becomes Bank of America, or Wachovia becomes Wells Fargo. Or the address of the lender changes and the notice of their mortgage being wiped out goes to the wrong address, or address where they used to be but are no longer at and the postal forwarding has expired. No notice is given to the lien holder, so they are not wiped out.
...
The forfeiture of one's real estate over a tax bill which sometimes can be very low dollar amounts and very confusing is indeed a drastic measure and the courts almost always will side with the sympathic side if at all possible. Lack of notice for what ever reason opens the door, so a tractor trailer could be driven through.
A link I provided earlier discusses a case of a bank name change:
http://www.pacourts.us/assets/opinions/Commonwealth/out/1468CD13_4-30-14.pdf?cb=1
This other link I gave earlier is about the case over a paltry $6.30 tax bill due:
http://www.pacourts.us/assets/opinions/Commonwealth/out/1079CD12_8-19-13.pdf?cb=1
As to the lien holders being notified, the courts will have the "proof" provided by the TCB when there is no challenge from any lien holders, so unless the TCB totally ignored attempts at notice, the liens should get wiped. Then of course the lien holders might challenge the deficiency in notice, and deficient notice is the gist of most TCB court cases that I've come across. Some lien holders will win their challenge, some won't (as one can see from the links I provided where I tried to not be one-sided).
Not trying to change any opinions here ... And yes the risk is real and always there in tax sales.
Doesn't seem to stop the players though; one pair in Montgomery County that buy quite a bit have been mentioned in one of my links above.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes12y
What the law says and what happens in reality may be two different things. Yes if the certified mail comes back as "Undeliverable" from the post office, the tcb is supposed to by law make a diligent search for the lien holder. That does not always happen. In the larger counties they have thousands of lien holders to notify and just don't have the time or staff to do that. The work is very seasonal with only one or two sales a year. They are swamped with work right before the sale, they six months later have very little work. The county commissioners who control staffing don't want to over staff for the peak periods and then have staff with nothing to do the rest of the year. Bad political juju.
Some of the counties with thousands of properties on the initial list have 2 people on staff, they can't possibly do a diligent search as required by the law. One current case involved Citibank. Notice was sent to them at a branch that was closed. It was open when the mortgage originated, but now its closed, and the forwarding notice expired. The tcb got the certified mail back, and that's the end of the story, no follow up, no research. No notice was given to Citibank, no notice, no wiping out of that mortgage. The buyer got the deed, but that mortgage is still in effect against the property. And as long as Citibank doesn't get notice, the legal clock for the statute of limitations has not begun to tick.
The one owner searches is a big problem, as the search never picks up liens of former owners that are unsatisfied. No notice, no wiping out.
All these pitfalls don't stop people from bidding at the sale. Some have no knowledge of what is really going on. Some flip the property with a Quit Claim Deed and the problem becomes somebody else's problem. Some hold the property for rental and it only becomes a problem if:
1. They try to sell it.
2. They try to refinance it.
3. The bank gets wind of the problem.
We could talk at length about how the banks are screwed up, particularly after 2007.....
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes12y
In the First Niagara case, the bank had notice in the Citibank case the bank did not have notice, BIG distinction.
- 12ySean H.Pro MemberFlipper/Rehabber · Pittsburgh, PA · Member since 2010 · 224 posts · 75 votes
Well this was definitely enlightening, thanks @David Krulac and @Steve Babiak and everyone else for your insights.
I want to restate the process so that I am clear in my own mind about the process, the potential hurdles involved, and
1. The list is released for my county in PA for an upset sale. I should identify the properties I would be interested in purchasing. I would then do a physical inspection of the property to the fullest extent possible.
2. Of the properties that remain, I would perform a title search on them to identify any other liens or judgments that may be present. What does a title company charge to perform these searches and what is the turnaround? Suppose I found mortgages or a federal tax lien on the property, is this a deal killer? Does it just depend on the particular properties value less the payoff?
Let's say I acquire a property for a $5,000 tax payoff and there is a $50,000 mortgage, but the property is worth $100,000. When do I have to pay off the mortgage, when I acquire it on at the tax sale or when I sell the property?
3. I now have a list of properties that I want to buy, appear to be in good physical condition, and I have full knowledge of the potential title issues that could exist.
4. I go to the tax sale in September. Do I have to pay the full amount of the tax lien? David mentioned different states perform the auctions in different ways, how does PA do it? Specifically Cambria county?
5. I purchase one tax lien. Do I immediately receive the tax deed and I am the owner of the property? If I do not receive the deed immediately, can I still begin to evict/deal with the occupants?
What needs to be done with the deed to make sure that it is transferable to a buyer who may get a mortgage on the property?
I'm sure more questions will come up, but thanks for all of the help!
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes12y
You ask a lot of questions. Be very careful. I am teaching on tax sales in Lancaster on July 17 and all day on July 26.
1. ok, except that 90% will not be sold by the time of the sale in Sept. Every property you spend time and money researching could drop off the list, oh well!
2. local title companies charge different rates, one co. here charges $150 a search. a mortgage or lien may be a deal killer depends on $ amount, value of property, condition of property, location of property, etc. Payoff would depend on the bank. some might want immediate payoff as a violation of due on sale., not likely but possible.
4. at some sales they stop the auction until you pay 100% of purchase price, 2% transfer tax, and all fees before proceeding to the next property. At all sales you have to pay by the end of the sale.
5. PA does not have tax liens, you're comparing apples and oranges.
6. some courts like DJ won't allow eviction since you as the high bidder do not have a contract/lease with the occupants. no contract, no eviction. Then you would be required to do a Common Pleas law suit called ejectment, can take 6 months and costs thousands.
7. to refinance or sell the property you need title insurance, check with your local title insurance provider to see if they will insure.
- 12ySean H.Pro MemberFlipper/Rehabber · Pittsburgh, PA · Member since 2010 · 224 posts · 75 votes
I saw the list in today's paper and wanted to see how feasible it would be. I'm over in Johnstown, so the Saturday would be best, but I'll actually be near Hershey for a wedding all day, so I doubt I could make it. Thanks for answering my questions though.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes12y
Some counties gave a time later in the same day where payment in full must be remitted.
Please explain what "good physical condition" means to you @Sean H. since you are here discussing tax sale properties that tend to be in less than stellar shape.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes12y
Also, you should ask the tax claim bureau how long it typically takes for the deed to be issued and recorded, because any legal action you need to take with occupants has to wait for that deed to be done.
It could take months ...
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes12y
Excellent points. I've seen houses with the 4th wall missing, roofs missing, etc. sometimes the properties have been empty for a long time. I have seen properties unoccupied for 15 years and 30 years without any maintenance done.
Typical time period for deeds in my experience is 2-4 months.
- 12ySean H.Pro MemberFlipper/Rehabber · Pittsburgh, PA · Member since 2010 · 224 posts · 75 votes
@Steve Babiak Not really sure what to expect when I look at these properties to be frank. I got interested seeing that I could potentially scoop up houses for pennies on the dollar, so I wanted to understand more about the process.
As I expected, there is a lot more to it than just paying $6000 for a $150,000 property. This seems to be especially true in Pennsylvania.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes12y
Its an auction and there will be other bidders, some professional, some experienced, and sometimes the prices are market prices. If the property is an undervalued gem, you can expect competitive bidding. Make sure you do your due diligence and set a bid limit and don't let the auction fever drive you above your bid limits. Here's to no buyer's remorse.
- 12yJessica H.Pro MemberFlipper/Rehabber · Easton, PA · Member since 2013 · 224 posts · 36 votes
I was wondering if it is a similar process for sheriff sales? Locate properties you would be interested in. check them out best you can, run a title search?, go to sale and bid. Generally are the houses overpriced at sheriff sales?
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes12y
@Jessica H. Sheriff sales have many similarities but also many differences in PA.
Title search, lien position, how much to bid, ability to see property for inspection - those end up quite similar. Payment terms are different; at sheriff sale, before the auctioneer moves along a deposit must be paid, but at tax claim bureau sale that might not be the case; a tax claim bureau sale will require payment in full the day of the sale, but a sheriff sale purchase will allow for just a deposit the day of and the balance within so many days (number of days for balance varies from county to county). Sheriff sale will have mortgage foreclosures that follow law and rules applicable to mortgage foreclosures; sheriff sale can also have various municipal liens up for auction and those follow a different set of law and rules; and tax claim bureau follows yet other rules.
Related reading on sheriff sales can be found here:
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